By Daniel Lanyon on Wednesday 15 July 2020
COVID 19 wasn’t the first challenge alternative lenders have faced in recent months and years, but it is its biggest in a decade.
The UK’s peer-to-peer lending industry is undergoing one of its biggest tests, according to Zopa CEO Jaidev Janardana, who says COVID-19 could mean a large number of firms going out of business.
Zopa, which pioneered the peer-to-peer lending model in 2005 and his since moved to operate a licensed bank alongside its profit-making P2P lending business, is potentially affected by changes in the real economy.
As a consumer lender, it is a cyclical business and therefore correlated to the economic fortunes of the wider economy but also subject to demand for its loans on the investor side from retail and institutional investors alike.
With the COVID-19 crisis bubbling into the economy the P2P lenders are facing the latest in a series of tests that have put disruptors in the spotlight. Janardana, who joined Zopa in 2014 as COO and was a year later promoted to CEO, says this reality means the whole industry will be tested.
“I think the peer-to-peer lending business in itself is going through a moment of truth, particularly in terms of what is going to happen to some of our competitors in the space,” he told AltFi in a recent interview.
“It seems to be one of those inflection points where if the industry - three, four of the big players - can survive and deliver good customer outcomes that can be a huge proof point in the future,” he said.
“On the flip side, if only one or two are able to do that, then that might create some doubts and customers and that might stunt the growth of the of the industry for longer,” he added.
Janardana says there has been almost “no disruption” at Zopa since the crisis began to unfold.
“We've been largely business as usual in the way we've been able to respond to both our borrowers and investors and continue to lend, continue to attract new borrowers, as well as new investors,” he said.
"We have been proud of how we've been able to manage through this crisis. Specifically, in terms of maintaining the product proposition to the customer and service availability.”
“And I don't think there is any other platform that has been able to do that. A lot that will happen in the industry will define how customers are going to view the industry."
He says it could go in one of two ways. Either it will show naysayers the resilience of the model or be cataclysmic for many firms.
“We are reasonably confident that our assets will perform on a relative basis far better than many other financial assets as well as other platforms. But what happens post-COVID?”
“How do investors experience financial returns and in terms of being able to access their money when they need it, and so on, will define how investors are going to go to view peer to peer in the future.”